Wednesday, November 28, 2007

Miniature boomtowns commonly occur even in shrinking cities, as employers move in, retail districts appear, and well-planned developments coalesce into successful new urban centers. But just as often, a stretch will remain depressed for decades without change, slowly bleeding value from your investment. An understanding of past, local trends is key to predicting future ones, but that understanding is hard-won only through long observation.

The peculiarities of place deflect migration and investment, retarding economic development in areas ripe for rich returns. People and money will flow to where the opportunity costs are well known, paying a dear premium in order to stay on terra firma. Terra incognita, where high risk meets high reward, is the shrinking city.

I mentioned that Pittsburgh’s green map showed just a single brownfield in the 11-county area. [Green Maps founder Wendy Brawer] immediately recalled that the sponsoring group’s goal had been “to encourage people to stay in the area after graduation,” so it mostly listed environmental goods and didn’t tackle tougher issues. “We hoped they’d do another project,” she says, “but I’m not sure the group still exists.” In Shanghai, where unofficial maps are forbidden, local would-be green mappers await governmental approval.

Wednesday, November 21, 2007

Pittsburgh, like Erie, welcomes back its Diaspora for the Thanksgiving holiday. The result was a lively scene downtown. Many restaurants were packed with patrons. I can only guess who were the expatriates, but Tuesday is not traditionally a big night out. If I'm wrong about the reason for the large crowds, then Pittsburgh's nightlife is no longer on life support.

Beer talk provides a good entry into a city's circle of insiders. While some may consider beer snobs to be bourgeois, the passion for beer cuts across class and can provide a common ground for socializing. But beer geeks have a special bond. We often have more in common with a fellow geek halfway across the country than with anyone in our neighborhood or local circle of friends. As I navigate Pittsburgh during my weeklong visit, you are likely to find me at quite a few predictable places.

Monday, November 19, 2007

City boosters are feting an article about the importance of proximity. Face-to-face interaction is proving difficult to reproduce in a virtual environment. For creative enterprise, moving to the big city remains a rational choice. There is no denying the proximity rule, but other benefits to urban living are less compelling. The discussion about the value of diversity unintentionally points out one of the strengths of the Flat World thesis:

In order to get the intellectual benefits of diversity, you first have to actually talk to a wide variety of people. Cities are good for challenging people's natural preference to stick with their own kind (a fairly universal social tendency known as "homophily"). Scott Simpson, who runs Take Root Consulting, relies on the diversity of his Washington, D.C., neighborhood to figure out how to connect with a range of audiences. On a typical day, Simpson might bring his laptop to the Ethiopian coffee shop, work his shift at a gay bar, and buy some fruit from the Salvadoran guys on the corner. When working on an AIDS awareness campaign, Simpson put a nonprofit in touch with some local Ethiopian, Nigerian, and Ghanaian activists. The nonprofit learned how the local groups used blunt language and national pride to connect with their communities, helping it to be more effective in its own messaging.

Even in the serendipitous city, your next door neighbor can be a world away and homophily will trump proximity. All the visual cues you might receive in a face-to-face interaction won't help if the cultural barrier is imposing enough. "Blunt language and national pride" can travel long distances and do benefit from advances in communication technologies.

In the near term, the "Flat World" is a making all the assets of living in the city more visible. Anyone from Pittsburgh can tell you about the isolation of certain neighborhoods, but proximity is worthless without connectivity. Density and diversity don't mean the same thing in each part of the big city. In the long term, the world will get less spiky. But that doesn't mean the world will start trending away from urbanization.

"They probably think of the cities of the AFC North, you know--which we share a football league. Cleveland, Cincinnati, Pittsburgh...but Baltimore economically is very different from those cities," said economist Anirban Basu.

Now economists want to dump that old image, point out that while manufacturing used to drive Baltimore's economy, health care has since taken over.

"Health services, medical research, defense technologies and tourism. Much less about manufacturing and distribution which, of course, were major drivers for Baltimore in the 50s, 60s, 70s, but not as much today," Basu said.

"I think foremost, we need to educate the local people. You know, we're the biggest advertisers you can have. When you're on a place and you're outside the region and you talk to someone about Baltimore and you don't have the proper image if you, you certainly can't expect other people to have the proper image of it," [EABC's Edwin Blake] said.

Wednesday, November 14, 2007

All is not well in Pittsburgh. The chief indicator of the region's economic malaise is flagging job growth. Harold Miller tabs "uncompetitive state business climate and insufficient support for entrepreneurship" as the culprits for this problem. I bring this up as evidence for the relevance of the Burgh Diaspora to solving some of Pittsburgh's woes.

Given that most of the Burgh Diaspora is located within the United States, studies of "cross-border ethnic networks" would seem non-applicable. However, the differences in business climates between states are real enough and the internal borders within this country do matter. With this in mind, read the following abstract about the importance of the Indian Diaspora to domestic India's entrepreneurship culture:

This study explores the importance of cross-border social networks for entrepreneurship in developing countries by examining ties between the Indian expatriate community and local entrepreneurs in India's software industry. We find that entrepreneurs located outside software hubs—in cities where monitoring and information flow on prospective clients is harder—rely significantly more on diaspora networks for business leads and financing. Relying on these networks is also related to better firm performance, particularly for entrepreneurs located in weaker institutional environments. Our results provide micro-evidence consistent with a view that cross-border social networks serve an important role in helping entrepreneurs to circumvent the barriers arising from imperfect local institutions in developing countries.

In Pittsburgh's case, the barriers would be the "uncompetitive state business climate and insufficient support for entrepreneurship." The landscape for entrepreneurship in Pittsburgh is imperfect and improving it might be difficult at best. As studies point out, the diaspora can make up for these shortcomings.

In a telephone conference call, [Bruce Katz, the director of the metropolitan study group at the Brookings Institution,] said the federal government was undermining metropolitan areas by funding highways in rural regions when it should be paying for rural broadband Internet access the way the government paid to get electricity to those areas more than half a century ago. In the metropolitan areas, he said, the federal government should direct money to upgrading the ancient infrastructure such as the water and sewer systems and pay for mass transit and high speed rail to connect regions.

"The knowledge economy really requires proximity," he said.

Metropolitan areas are defined by their commuting links to the central core and do include some rural areas and some exurbs. In the Pittsburgh region, that includes Allegheny County south to Fayette County, west to the Ohio line, east to Westmoreland County and north to Butler County. The Pittsburgh region constitutes 19 percent of the state's population and 20 percent of the state's jobs.

Where proximity is king, urban areas should thrive. Better policy will result in a better Pittsburgh? I appreciate the shift of political geography from state to metro, but the irony is the diffusion of knowledge workers throughout the region. Then there is the stronger attraction of certain places. The geography of the knowledge economy isn't quite as simple as Mr. Katz portrays.

At a national or global scale, proximity is indeed king (as the migration to cities demonstrates). But within a region, a different story emerges. Exurbs continue to move farther away from downtown and long distance commuting is more common. Office parks are moving closer to where the knowledge workers reside and the area of higher density living is expanding.

What the knowledge economy really requires is connectivity, not proximity. The reliance on proximity impedes the development of the knowledge economy. Instead of throwing billions of dollars at infrastructure, I'd fund research that solves the proximity problem. This is why I'm so interested in the work of Jon Udell and the Freelancers Union. Both blogs struggle to overcome distance and the importance of face-to-face interaction. I think Pittsburgh is well positioned to be a global center for the non-proximity economy (i.e. knowledge economy).

We firmly believe that a regional focus and presence is critical to success in seed and early stage investing. Seed and early stage companies are often pre-product, pre-customer and pre-revenue. It is necessary for successful seed and early stage investors to work actively with their portfolio companies in building management teams, defining product and market strategy and assisting in financing and fund raising. To be most effective in this role, it is important for the investor to have a regional presence in order to be near the portfolio company and become actively engaged with the company.

Once again we see that proximity is the rule informing the geography of venture capital. Since Pittsburgh can't satisfy the investment appetites of Draper Triangle, the fund is expanding operations to relatively nearby Cleveland (recently opening a branch office there). Pittsburgh is close, but not close enough. What about extending a presence to NoVA or Raleigh-Durham?

I don't mean to suggest that the various mega-regions are dysfunctional and put the cart before the horse. Cooperation at the mega-regional level may help get around the considerable impasse against regional formation. I can appreciate the obvious coherence inherent in these mega-regions. However, I put a higher value on a given city's global connectivity over that of hinterland integration.

Knowledge economy geography is about the exceptions to the rule of proximity. The hinterworld of New York City allows for the fact that the relationship with London is more important than the one with any other city within the mega-region. I'm not sure that pursuing a policy of hinterland development is a good idea.

Thursday, November 08, 2007

Today's stop is Delavan to visit with Dave, a member of the Burgh Diaspora living in Illinois. Dave posts about the community of baseball fans who cheer(ed) for the Pittsburgh Pirates:

For me, baseball was a connection to family. Growing up in Pittsburgh, almost my entire extended family still lived nearby and we were all Pirates fans. Baseball crossed gender, ethnicity (for the most part - once African-Americans and Latinos were accepted into the game), and class. My two childhood heroes were a Puerto Rican and an African-American. My love for Roberto Clemente and Willie Stargell was shared by ALL the kids my age in Pittsburgh. And all the fathers. And mothers. And aunts and uncles.

Baseball was a connection to more then immediate family. It crossed generations. Grandparents and great-grandparents - who all lived where you lived - supported the same team, even if the players were different. It was a shared identity - and one that still defines a lot of people today.

In Dave's estimation, the Pirates position as a cultural touchstone began its decline around the same time the exodus from Pittsburgh went full throttle. There are a number of reasons as to why interest in the Pirates waned, but the main one concerns how well the team has played. As the losses mounted, the Pirates Diaspora disappeared into Steelers Nation.

The success of many place-centric social networks depends on the fortunes of a sports team. If a college football team struggles to recruit top talent, alumni donations to a university will suffer. Fans will stop gathering in the sports bars across the country and people will stop connecting. Not only is there a real financial cost to a poorly run program or franchise, accrued social capital also takes a hit. Unfortunately, Pittsburgh is still waiting for a return on its investment in the ballpark, while the region continues to show little interest in cashing out on the Steelers success.

Sunday, November 04, 2007

But on a recent day in October, all was quiet at the nation's second-oldest major league ballpark. The lockers had long been cleaned out following a season that began with a promise and ended with another near miss.

Suddenly, cheers erupt from Merkle's Bar & Grill on Clark Street, packed with University of Iowa grads who congregate there nearly every week to watch their Hawkeyes play football on a half-dozen big screen TVs.

Moments later another roar explodes a few doors up the street at the Houndstooth Saloon, the Chicago headquarters for University of Alabama fans decked out in their crimson red for a televised game against Tennessee.

It's College Football Saturday, and alumni living in Chicago have connected at their designated watering holes.

On Sundays, team colors change to blue and orange when more fans gather to watch their beloved Bears - except at the Dark Horse Tap & Grill, where a gold and black Steeler flag flies outdoors, and bartender "Pittsburgh" Dave pulls Fat Tire beer from the tap.

I've made much of the national Steelers fan community (the exception to the Chicago rule of adopting the Bears once you move there), but the Black and Gold faithful are part of the American geography of young professionals. There are Wrigleyvilles in a number of vibrant cities around the United States, where you can see a variety of subcultures on gameday. An allegiance to a certain college or professional team can help a newcomer develop a social network in a place full of transients.

College sports are important for maintaining a relationship between alumni and the university. The ability of a bar to inexpensively provide a broadcast of your favorite team has extended the university community to the locations where graduates find jobs. Furthermore, social media technologies make face-to-face interactions with fellow alumni less serendipitous. As Benedict Anderson might note, the above innovations help overcome geographic barriers and result in new identities, the birth of a Hawkeye Nation.